Is My Hobby Really A Business?

Emma Bowdler | The Women's Accountant

EMMA BOWDLER

I’m a cheerleader for women and an accountant bursting with personality. 

If your business was born through a genuine passion, sometimes it can be hard to draw a line in the sand and distinguish whether it’s really a hobby or a business. 

Sometimes a hobby may turn into a business and sometimes a business may turn into a hobby; whatever the scenario, defining the differences between the two is crucial in the launch phase, as not declaring income correctly can land you in a lot of hot water with the Australian Taxation Office (ATO).

 

While you may not define your life’s work as well – work, you can bet your bottom dollar the tax man will.

Luckily the solution to this is simple. 

It just comes down to asking yourself a few questions:

  • Is the activity being taken for commercial purposes?
  • Have you got a registered business name or ABN?
  • Do you intend to make a profit?
  • Is the idea being done regularly?
  • Is the size of your undertaking similar to competitors?
  • Is your activity planned, organised and carried out in a business-like manner?
hobby really a business
Toowoomba Business

“Sometimes a hobby may turn into a business and sometimes a business may turn into a hobby…” 

EMMA BOWDLER

Is-my-hobby-really-a-business

If you’ve answered yes to two or more of these questions’ congratulations – you more than likely have a business.

The next step is to investigate what you need to do to declare your tax correctly.

The easiest way to do this is reach out to a tax service provider, who will help you get your books in order.

The ATO estimates that almost 90 per cent of small businesses use a third-party tax professional to help them declare correctly.

But wait, what’s a hobby then? 

According to the ATO website “a hobby is a pastime or leisure activity conducted in your spare time for recreation or pleasure”. If this is the case for your venture, you do not have an ABN – or the same tax obligations. 

However, if you are supplying goods or services to businesses you may find them requesting an ABN from you. If this is the case provide them with a “statement by a supplier” form instead, which will avoid businesses withholding the top rate of tax from payments made to you. 

Lastly, it’s important to recognise your company’s situation may change in time. 

It’s important to check in regularly, re-examine the six questions posed above, and make the necessary arrangements should you find yourself suddenly operating as a business.

operating a business

EMMA BOWDLER

I’m a cheerleader for women and an accountant bursting with personality. 

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